In the emerging Software as a Service (“SaaS”) market, many companies give their application away for free to the end-user and monetize the application with advertising revenue from third-party advertisers. There are currently three primary methods for Internet advertising: Cost Per Thousand Impressions (CPM); Cost Per Click (CPC); and Cost Per Action (CPA). CPA is not widely used in Web applications, and none of these prior methods alone maximize the potential for advertising revenue generation.
Current leaders in the Web-based email space primarily use the CPM or the CPC model. More specifically, these leaders primarily use banner advertisements with a CPM model to monetize page views. These email systems generate revenue every time a page is viewed with an advertisement embedded in it. Unfortunately, these implementations generate relatively low average revenue per user (ARPU).
Others in the industry use the CPA model in association with banner advertisements. However, these banner advertisements often are perceived as clutter and are not effectively targeted to the current user. As a result, this implementation also generates relatively low ARPU.
Attempts to improve upon this method have been made by introducing the use of a contextual engine to scan the text of an incoming email and display relevant advertisements next to the message to the recipient. However, this method concerns many consumers who believe their privacy is being invaded and thus this method has not been commercially successful. Additionally, as explained in greater detail below, this method is not effective in targeting the appropriate type of advertising to the recipient.
Revenue generation with search advertising works by delivering relevant text advertisements next to the organic search results and charging primarily on a CPC model. Since a user who is performing the search has a given intent, you have the two critical functions you need for success in CPC advertising: relevance and intent.
In email, however, the intent lies with the sender of the email, not the recipient. The recipient's intention is merely to read the message. As a result, even if you deliver relevancy to the content of the message, you are only relevant with context to the sender's intent, not that of the recipient. Thus, the targeted advertising sent to the recipient often is not relevant to their needs or desires. This results in lower click-through rates because users may simply tune these advertisements out over time because they may not be relevant to their needs. The net effect is lower average revenue per user (ARPU) than in paid search.